BANKER - CUSTOMER RELATIONSHIP Banker Customer Relationship What is a Banking? “ Banking means the accepting, for the purpose of lending or investment, of deposits of money from public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise” Any company doing banking business on these lines will be termed as a bank and individuals involved are the bankers. Banker Customer Relationship Different activities undertaken by a bank. Borrowing and lending of money. Collecting Negotiable instruments on behalf of the customer. Dealing in foreign exchange. Granting Letter of Credit to customers. Providing Safe custody facility / lockers. Banker Customer Relationship Acting as an agent on behalf of the customer. Underwriting & dealing in stocks, shares on behalf of the customer. Issuance of Guarantees. Dealing with property that may come to it as security in satisfaction of its outstanding claims. Offering different value added services like ATM, Online banking and internet banking. Issuance of currency notes. Banker Customer Relationship Qualification of a Customer. He should not be a minor. He should be a person of a sound mind (he understands the contract at the time of making it). He shall not have been debarred from entering into any contract under any law. He deposits money and bank accepts it. Banker Customer Relationship Rights & Duties of the Customer. RIGHTS. To draw cheque against his credit balance. To get passbook, cheque book, and periodic account’s statement. To make bank liable to correct any over crediting or over debiting. To sue the bank for the cost, loss, and damages when his cheque is wrongfully dishonored. To sue the bank if the secrecy of his account was not maintained. Banker Customer Relationship DUTIES. To present the cheque for payment or collection with in the banking hours. To insure that cheques should not be Stale or Post dated. To keep his cheque book / ATM in safe custody. He should draw the cheque in a manner that no alteration can be done for fraud. Banker Customer Relationship Different types of Banker Customer Relationships. As Creditor and Debtor. When customer deposit money, he becomes creditor and bank as debtor by accepting and then further utilizing it. As Bailor and Bailee. When a person gives goods to some one for some purpose. When banks provide safe custody facility to customers to keep their valuable belongings. Customer is bailor and bank is bailee Banker Customer Relationship As Principal and Agent. When a banker performs Agency service he becomes Agent of his customer. This may include collection of cheques and other instruments or payments on behalf of the customer with his standing instructions. Banker Customer Relationship As Pawner/Pawnee, Mortgagor and Mortgagee. When a customer pledges goods and documents with the bank as security for an advance, he becomes the Pawner and the bank becomes Pawnee. Similarly, when advance to the customer is made against security of immovable property, the relationship becomes that of Mortgagor and Mortgage. Banker Customer Relationship Special feature of Relationship. The following are special features of this relationship. Obligation to honor cheque. It is obligation on the bank to honor the cheques drawn on him by his customer as long as his balance is sufficient, provided the cheque is not Stale or Postdated and that there is no prohibiting order of any court against the account of the customer. Banker Customer Relationship Right to Lien. 1. 2. “Lien means right to retain the property belonging to another until the debt due from the latter has been paid” Bank has a right of Lien on any kind of securities deposited by the customer. Following conditions do apply for exercising right of Lien: The property of the customer must come into the hands of the banker. There should not be any entrustment for special purpose. Banker Customer Relationship 3. 4. Banker should obtain possession lawfully. There should be no agreement inconsistent with the right of Lien. Banker Customer Relationship Right of Set – Off. “ Set-off means adjusting debit balance against credit balance in other account or accounts of the same borrower” It is a legal right of the banker. Normally, banks get written authority from the customer in advance for this so that there is no need of notice. Credit balance of one account of the customer can be used to adjust the debit balance in another branch. Banker Customer Relationship For partnership, the personal account of the partner cannot be used to set-off the firm account but for sole proprietor it can be used. The balance of the single account cannot be setoff for any joint account un till otherwise agreed by the joint account holders. Individual account can be used for set-off for Trust account but Trust account cannot be used. Banker Customer Relationship The Banker’s duty of Secrecy. The banker customer relation is a confidential agreement/contract so it is the duty of the banker not to disclose any kind of information to third party who so ever he/she may be. It include both personal information and the information of the status of the account. Banker Customer Relationship 1. 2. 3. 4. 5. Banks can disclose information in the following cases. Under Compulsion of Law. Duty to public to disclose. In the Interest of the bank. Express or Implied Consent of the customer. Common courtesy to the other banks. Banker Customer Relationship Termination of Relationship. Since banker-customer relationship is a contractual one, it may be terminated by any one of the two by serving a notice to other. Notice by the customer. The following are reasons when customer serves notices to the bank for termination of the contract. Banker Customer Relationship 1. 2. 3. 4. 5. 6. Due to the change in residence. Unsatisfactory services by the bank. Death of the customer. Shifting of account to the other branch/bank. Changing of account nature. To close accounts for special purposes like salary accounts. Banker Customer Relationship Notice by the Banker. 1. 2. 3. Banks normally serve notice to the customer before closing their accounts for any reason. This notice can be served due to many valid reason like: Insufficient balance in the account. Presenting cheques after business hours. Having very less balance for a long time.